Call for auto enrolment earnings bands to be scrapped

Band earnings for auto-enrolment should be scrapped to allow workers to enter a workplace pension as soon as they start paying National Insurance, according to NOW: Pensions.

Commenting on its report Pensions 2022 – a vision of the future, Chief Executive Officer Morten Nilsson argued that band earnings have a corrosive effect on employees’ pots.

“The reality is no savers actually get an eight per cent contribution – the most anyone gets is 6.9 per cent if they are exactly at the top of the earnings band, with somebody earning £15,000 only receiving a total contribution of 4.9 per cent which is woefully inadequate,” he said.

He added that by removing band earnings and basing contributions on all salary employees’ savings would be boosted and it would eliminate some of the administrative complexity for employers.

These comments were in addition to some of the views voiced within the report. Dr David Blake, Professor of Pension Economics at Cass Business School and Director of the Pensions Institute, suggested that the eight per cent contribution rate was not enough and it would take years before this target was reached.

“Auto-escalation – the automatic increase in the contribution rate every year for three or four years – would in time provide the right level of contributions needed to produce a reasonable pension in retirement,” he said.

However, Nilsson believes that the Government is unlikely to address this issue until post 2017, which is why in the interim he has called for the removal of band earnings.